As we mentioned in our previous post, The Board of Directors is obliged to submit the report with respect to the financial statements to the annual shareholders meeting of a company for approval. In this post, we would like to call your attention to a company’s official financial statement, its scope and requirements.
Companies and other organizations operating in the territory of Mongolia are required to submit financial statements electronically to the local Ministry of Finance. These statements must be maintained in Mongolian language and reported in the national currency of Mongolia, the Tugrug.
The financial statements of company must include the following: (1) A record of the current balance, (2) the income statement, (3) statement of shareholders’ equity, (4) cash flow statement, (5) financial statement clarifications.
The financial statements must be approved by the company’s highest authority and financial officer and submitted by July 20, with completed annual financial statements due by February 10 of the following year. Mongolia has implemented a electronic filing system for submission of the statements. The accounting files and financial statements of the company are required to be maintained for at least 10 years.
The Ministry of Finance is responsible to monitor banking and financial markets and is entitled to request additional explanation and clarification from a company with regard to a submitted financial statement. In this case, the company is obliged to provide accurate and complete explanation and clarification as requested.
The highest authority of the company is responsible for managing and organizing the accounting. The company may engage contracted accountant’s service or professional accounting consulting service.
Some organizations, in particularly foreign invested companies are subject to mandatory auditing of financial statements. We will provide the more information related to these mandatory audits in an upcoming post.
We have posted
several blogs consecutively in connection with the governance of company in
particularly, Authorities of Shareholders Meetings and Board of Directors’
meetings and Secretary of Board of Directors.,etc.
This time, we
would like to raise the procedures of calling regular and special shareholders
meetings under the recent legislation in Mongolia. It may take an interest of
the foreign investors or businessmen who cooperate with the legal entity of
Mongolia thought the company operations in Mongolia.
As we all aware
that the shareholders meeting is the highest governing authority of a company. The
shareholders meeting can be either regular or special.
The regular shareholders
meeting shall be called by the Board of Directors and held within four (4)
months following the end of each fiscal year of a company. If there is no Board
of Directors in the limited liability company, the executive body will in
charge of this obligation. The authority of the Board of directors shall
terminate whether a regular shareholder meeting is not called and held within
the period abovementioned. It means that any agreements or transactions entered into after
the termination of the authority of the Board of Directors shall be invalid.
As for the special
shareholders meetings, The
Board of Directors shall call the special shareholders meeting in the following cases:
- more than 50 percent of the Board of Directors not to work or not possible to work;
- two (2) or more independent members of the Board of Directors,
shareholder(s) of 10 or more percent of voting rights has issued a proposal or
- the losses incurred by the company exceeds 30 percent of the owner’s
equity at the time of the last financial report;
- the company debt has exceeded the owner’s equity two (2) years in a year,
and is a negative figure;
- the Board of Directors has issued a decision;
- the audit committe has demanded to convene a special session of the
- all other cases
specified in the company charter.
The Board of Director makes a decision whether or not to call such special shareholder meeting within ten (10) business days following the date that they receive the demand by shareholder(s) who owned 10 or more percent of voting rights of the limited liability company. In the case, the Board of Directors decides to call the special meeting demanded by the shareholders; such meeting shall be called within forty-five (45) days following receipt of the demand.
If the decision of the Board of Directors
to refuse to call a special shareholders meeting, the shareholder making such
proposal or demand are entitled to appeal to a court against the Board of
The Secretary of the Board of Directors is deemed as the
company’s eligible person.
Because he/she is
involved in the official decision of the company in both direct or indirect
ways. This is regulated in Article 84.1 of the Company code. The Secretary
of the Board of Directors shall be appointed by
the BoD upon the suggestion submitted by the Head of BoD.
Any person of the state
and regional administrative bodies, military, police, court and prosecutor’s
authority, or any person currently convicted to criminal penalty are prohibited
to act as the Secretary
of the Board of Directors. (Article 84.3 of the Company Code)
Article 75.8 of the Code also provides the Secretary of the
Board of Directors to be
enrolled in the corporate governance training and to have received the
Certificate thereof. This requirement applies to the members and
secretaries of the BoDs of joint stock and limited liability companies.
Articles 82.2, 97.5, 98.2 of the Company code specifically state the duties to be
performed by the Secretary of the Board of Directors. This shall include:
- to be responsible for the administration of the internal operation of the Board of Directors;
- to take notes of and administer the shareholders’ meeting and the board of
directors meeting, and to convey inform to the
- to be in charge for the preparation of the shareholders’ meeting and the
board of directors meeting, to prepare the
information related to the announcement of the meetings and discussion topics,
and the drafting and delivery of the draft of the resolution to be approved and
other documents in accordance with the relevant procedures;
- to take meeting minutes of the shareholders’ meeting and the
board of directors meeting, to verify the
decisions and resolution in accordance with the relevant procedures, and to ensure
the implementation thereof;
- to coordinate the activities of the shareholders’ meeting, the board
of directors, the executive director and other
As provided in the Procedure
for Arbitration proceeding of the Mongolian Chamber of
Commerce and Industry, the Parties are entitled to submit the request on the
deferral of the hearing only on the grounds stated in law or justified reasons.
The Law on
Arbitration does not provide an interpretation on what occasions shall be
deemed as the justified reasons. However it may include the instances such as
being sick, getting a medical treatment, taking care of a sick person, having a
business travel inland or abroad, taking part in the training, joining the public
mobilization, to be
imprisoned in zone of public quarantine due to serious contagious disease, sudden
fire and natural dangers or force majeure events (flood, drought, zud,
dangerous snow and dust storms, earthquake, etc.).
to the Procedure for Arbitration proceeding stipulated,
if the Arbitration composition may defer the arbitration hearing if they deem
that new evidences are required. On the other side, the Parties may also file
the request to the appoint an expert for the case, and in such case the
arbitration composition may assign an expert if they deem it is inevitable for
the accurate detection of the arbitration case.
Finally, one shall
also note that it is almost impossible to defer the hearing by means of
challenging the arbitrator once the hearing has already taken place. This right
to challenge is granted to
the Parties only for 7 days after the receipt of the statement on the
neutrality of the arbitrator and this way you can defer the hearing.
According to the Law on Construction of Mongolia, “the permit for the commencement and continuation of the construction work” or simply “the construction work permit” shall represent the decision from the competent entity approving a particular company to perform specific construction work. In order to commence and/or continue the construction work, a company is required to submit their request to the Governor of the province or city. For such purpose, the following documents shall be provided along with the application:
- The verified decision on the location, design drawings, technical terms of the construction;
- The expertise of the comprehensive drawing of the construction and the conclusion of the expertise;
- The introduction and the copies of the state registration certificate and special license of the legal entity in charge for the development of drawing;
- The construction assessment report required for the environmental assessment in accordance with the environmental laws and regulations;
- If covered by insurance for sudden accident and/or liability, the certificates of such insurance.
In addition to the above-stated documents, certain special licenses such as licences for architectural design, as well as the comprehensive planning for the monitoring of the construction project shall be attached to the request.
Upon the receipt of the request, the Governor of the province or city shall issue the construction permit within 10 business days and verify the permit by means of a certificate.
As in many countries, Construction activities are required
to have appropriate permits. Construction a construction permit will typically be
issued for a period of 5 years. If the term of the construction permit expires,
it may be extended for a further 5 years. Legal entities with a construction permit are allowed to
perform construction activities as described by the permit within a target plot
of land. Construction projects without a
permit are subject to official fines.
Different types of permits are available for different
types of construction related work. Activities are classified in three separate
areas i) construction of a new structure, ii) expansion and renovation of an
existing structure and iii) demolition and removal of a structure. Each is also
further subdivided according to the nature and complexity of the specific
project and may be categorized as “low, “average” or “high” complexity. A construction
permit is project specific and must match the work being performed. For
example, a “high complexity” renovation permit will not allow a company to
perform “low complexity” new structure construction.
Construction permit is granted by the local provincial or from the city
Governor. When a developer files to obtain the construction permit the
developer should prepare and file an application describing the details of the construction
along with relevant technical documentation. Upon
submission of the application the reviewing authority make a decision and issue
the construction permit within 10 business days.
According to the 5th National Survey “Nutrition of the Mongolian population”, the there is a common high deficiency in vitamin and minerals among children and women in Mongolia.
The World Health
Organization (WHO) recommends the Government of Mongolia to consume enriched
food daily and provide a large portion of the day to day calories by a large
proportion of the population.
Therefore, the State Great Khural of Mongolia (Parliament) adopted the Law on the Enriched Food on 03 May 2018, which shall be effective from 31 December 2019.
The food enrichment is
aimed at preventing and monitoring vitamin and minerals’ deficiencies among the
populations and is a cost-effective and efficient public health measurement.
The Government of Mongolia
approved the “List of
Mandatory Enrichment Food ” by the Resolution No. 336 of October
31, 2018. According to the resolution, wheat flour, bread flour and salt are required to be enriched. This also applies to flour and salt imported to Mongolia.
According to the WHO
recommendation, the enrichment preparation for wheat flour is a combination of
vitamins B and D vitamins, iron and zinc. However, salt for food is enriched
with potassium iodate (KIO3).
In the framework of the
Law on Enriched Food, it is planned to approve the rules of the registration of the enriched food, the
creation of its database, the production and storage of fortified foods and the
procedures of indicating the enriched food’s emblems and symbols.
Today, on 18th October 2019, during its
Parliament session, the State Great Khural had its final discussion of the
draft Law on the Advocacy and other proposed law drafts, and 53.3% voted for
the adoption of the Law on Advocacy.
The Law on Advocacy became void in 2012, and there has been no specific law on advocacy or the legal professional since that time. According to supporters of the law, the legal profession has faced severe hindrances since 2012. Even the independent Attorney Association had collapsed, leaving legal professionals in uncertainty as to many aspects of the practice of law.
This new law contains detailed regulations concerning the rights, duties, and professional code of ethics for attorneys, as well as a description of procedures for settlement of potential violations thereof.
This Law on Advocacy shall enter into force from the
01st February 2020.
2019 fall plenary session of the State Great Hural started on Tuesday, 1
October 2019 at the State Palace.
At the opening of the fall
plenary session, the Speaker of the State Great Khural Mr
G.Zandanshatar remarked that only two regular session left for the
formed as a result of the 7th parliamentary election in 2016. There is a spring
session in 2020 after this session. Therefore, the fall session of parliament
requires to work under the tight schedule and high pressure.
Many bills, draft
amendments and resolutions are expected to be discussed and passed by the fall
session, especially a draft amendment to the Constitution of Mongolia and a
bill on elections must be adopted six months ahead of the next year’s
In addition, Parliament
is scheduled to review around
28 legislative proposals in despite of the resolutions during the autumn
session as namely below:
- Drafts of State budget in 2020,
- Law on the Legal Status of the Capital
Law on Legal Status of Cities and Villages;
amendments to the Law on Food Supplement and the Law on Food Security;
- Revised draft to the Law on Family;
- Revised draft to the Law on Labor;
- Draft amendments to the Law on Infringement
- Draft amendments to the Criminal Code;
- Draft amendments to the Law on Criminal
- Bill on advocacy;
- Revised draft to the Law on Tourism;
- Bill on Transparency in Mineral Resources;
- Revised draft to the Law on Competition;
- Bill on Patriotic Purchasing etc.
The Company Code of Mongolia allows the companies to decide on the organization and management of the BoD upon the approval of their Company Charter, and unless otherwise provided in a company’ s charter, the chairperson of the Board of Directors shall convene and preside at its meetings and supervise the preparation and retention of minutes of such meeting.
Moreover, the same Company
code does not provide any explicit procedure on the convocation of the BoD’s
meeting, in other words does not specify what type of communication / eg tele-
and/or online conference/ shall be used for the such meetings. This ‘open’ regulation
might be of interest to the foreign investors or businessman who live and work
abroad and have company operations in Mongolia.
The subjects to
be discussed at the BoD meeting and the Shareholder’s meeting also differ The
Article 76 of the Company Code of Mongolia provides the list of subjects, which
belong to the full authority of the Board of Directors, including but not
limited to the ones listed below:
- The holding of regular and special shareholders meetings;
- Election and modification of the company’s executive body and determining its authority;
- Selection of the company’s auditor and establishment of the terms of the contract to be concluded with such auditor;
- Conclusion of the company’ s annual report of business operations and financial statements.
Such subject matters stated
above shall be decided at the BoD meetings, and the Shareholders Meeting shall
make a decision regarding the decision and/or conclusion made by the BoD. In other words, the Shareholders meeting
shall approve the decisions made by the BoD.
In particular, the Authority of the Shareholders’ Meeting includes:
- Consideration and approval of reports prepared by the Board of Directors with respect to the company’ s annual operations and financial statements;
- Other proposals submitted to the meeting by the decision of the Board of Directors and others. For such reasons, the companies shall know the different legal provision concerning these two authorities in order to avoid any adverse legal consequences that might occur.